lec02-eco101-11

lec02-eco101-11 - InternationalTrade Lecture2 c...

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Unformatted text preview: InternationalTrade Lecture2 c Marc-AndreasMuendler UniversityofCalifornia,SanDiego September27,2011 2.ComparativeAdvantageduetoProductivityDifferences Econ101, c M.Muendler TradeTheory Whydocountriestrade?Shouldtheytrade? 1.Gainsfromspecialization (differencesintechnologyorresourceendowments) 2.Gainsfromeconomiesofscale(differencesinmarketsize) Classictradetheoryexplainstradeunderthefirstperspective. The RicardianModel ,the SpecificFactorsModel ,the Heckscher- OhlinModel ,the StandardTradeModel 2.ComparativeAdvantageduetoProductivityDifferences Econ101, c M.Muendler ComparativeAdvantageintheRicardianModel Themaininsightstobegained Ifeachcountryexportsthegoodsinwhichithasacomparative advantage,thenallcountriescangainfromtrade Comparativeadvantage,butnotabsoluteadvantage,determines whethertradeisbeneficial Opportunitycostsmeasurecomparativeadvantage Identifytheopportunitycosts,andpredictthepatternoftrade 2.ComparativeAdvantageduetoProductivityDifferences Econ101, c M.Muendler TheRicardianModel:AOne-FactorEconomy Basicingredients(assumptions) Numberoffactorsofproduction:1(labor) Mobilityoffactorsofproduction:Acrossindustries (withinacountry,notacrosscountries) Numberofindustries(goods):2(cheeseandwine) Perfectcompetition,transportcosts:0 Keyforce :Differencesintechnology (summarizedinunitlaborrequirements) 2.ComparativeAdvantageduetoProductivityDifferences Econ101, c M.Muendler UnitLaborRequirements Laborproductivityismodelledthroughunitlaborrequirements Unitlaborrequirement:Numberofhoursoflaborneededforone unitofoutput 1.Wine: a LW =3 ,3hoursoflaborneededforonegallon 2.Cheese: a LC =1 ,1houroflaborneededforonepound Theeconomystotalresources: L L =120 :theeconomyhas120workers(orworkerhours) 2.ComparativeAdvantageduetoProductivityDifferences Econ101, c M.Muendler ProductionPossibilities TheProductionPossibilityFrontier(PPF)...
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lec02-eco101-11 - InternationalTrade Lecture2 c...

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